Principal Issues: 1) Can a taxpayer, who inhabited a house wholly owned by their spouse or common-law partner but who now lives separate and apart due to a breakdown of their marriage or common-law partnership, benefit from the RRSP Home Buyers' Plan (HBP) despite living under the same roof? 2) Whether the position would be different if the taxpayer co-owned the home?
Position: 1) Generally yes, provided the other HBP conditions are met. 2) No.
Reasons: 1) In the case of a marriage, subsection 146.01(2.1) provides relief from the first-time homebuyer condition. In the case of a common-law partnership, the taxpayer would not be considered to have a common-law partner in applying the first-time homebuyer condition. 2) In the case of either a marriage or common-law partnership, subsection 146.01(2.1) provides relief from the first-time homebuyer condition.
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 7 OCTOBER 2021
2021 APFF CONFERENCE
Question 5
Homeownership and marriage or common-law relationship breakdown
For withdrawals made after 2019 under the home buyers' plan (“HBP”), the 2019 Budget introduced relaxations to the eligibility criteria to expand access to help taxpayers remain or become homeowners in the event of a marriage or common-law relationship breakdown.
Thus, for HBP withdrawals made after 2019, it is now permissible under subparagraph 146.01(2.1)(a)(i) (footnote 1) for an individual who would not otherwise be considered a first-time home buyer under the HBP at the time of the withdrawal to be considered a first-time home buyer if the following conditions are met:
- at the time of the withdrawal, the individual :
o is living separate and apart from the individual’s spouse or common-law partner because of a breakdown of their marriage or common-law partnership,
o has been living separate and apart from the individual’s spouse or common-law partner for a period of at least 90 days, and
o began living separate and apart from the individual’s spouse or common-law partner in the calendar year that includes the particular time or any time in the four preceding calendar years
- otherwise, all other conditions for participation in the HBP are satisfied.
Consider the following example:
- Mr. X and Ms. Y were common-law spouses and had been declaring themselves as such on their respective income tax returns for 6 years;
- The family residence they lived in belonged solely to Mr. X;
- Mr. X and Mrs. Y decided to separate;
- Mr. X and Ms. Y both live in the family home, although they consider themselves to have been separated since June 1, 2021, notably by sleeping in separate rooms, having no common social activities and no longer presenting themselves as a couple. Thus, although they live under the same roof, they consider themselves as co-occupants since June 1, 2021. Since that date, they have continued to live together solely in order to minimize the financial impact of their separation and also in order to allow Ms. Y to find a new residence that she will purchase and occupy as sole owner;
- Ms. Y wishes to withdraw $35,000 from her RRSP on September 15, 2021 under the HBP to purchase a new property on which she has made an accepted offer to purchase.
Questions to the CRA
(a) The CRA has previously recognized that the question of whether two individuals are living“separate and apart … because of a breakdown of their marriage or common-law partnership” is a question of fact. (footnote 2) The CRA has also previously recognized in various technical interpretations (footnote 3) that it is possible for two individuals to live in the same household while separated. Given these various technical interpretations, could the CRA confirm that the conditions set out in subparagraph 146.01(2.1)(a)(i) will be met so as to allow Ms. Y to withdraw funds from her RRSP under the HBP, even though she is living separate and apart from Mr. X in the same house, if all the other HBP conditions are otherwise satisfied?
(b) Using the example of Mr. X and Ms. Y, if they were married (i.e., not divorced) but also living separate lives and no longer presenting themselves as a couple, yet living under the same roof for the same reasons listed above, would the answer be the same?
(c) Would the answers to (a) and (b) be different if Mr. X and Ms. Y were co-owners of the family home instead?
(d) Would the answers to (a) and (b) be different if Mr. X and Ms. Y were co-owners of the family home and Ms. Y wished to withdraw the money from her RRSP to purchase Mr. X’s undivided share of the family home?
CRA Response to question 5(a)
An individual who wishes to participate in an HBP must satisfy the conditions set out in the definition "regular eligible amount" in subsection 146.01(1).
One of those conditions, set out in paragraph (e) of the definition of "regular eligible amount" in subsection 146.01(1), is that the individual did not, at the time of the withdrawal from the individual's RRSP, have an owner-occupied home in the period that began at the beginning of the fourth preceding calendar year that ended before the date of withdrawal, and that ended on the 31st day before the date of withdrawal.
Another of those conditions, set out in paragraph (f) of the same definition, is that the individual's spouse or common-law partner did not, during the same period, have an owner-occupied home that was inhabited by the individual during their marriage or common-law partnership. The CRA is of the view that if the individual does not have a spouse or common-law partner at the time of the withdrawal from the individual's RRSP, that condition does not apply.
The concept of "common-law partner" is defined in subsection 248(1). This definition deems persons who at any time are cohabiting in a conjugal relationship to be so living at a particular time after that time unless they were living separate and apart at the particular time for a period of at least 90 days that includes the particular time because of a breakdown of their conjugal relationship. Once that 90-day period has elapsed, the effective date of the change in family status is the date on which the two persons began to live apart. For that purpose, the CRA's long-standing position is that two individuals can live separate and apart while remaining in the same household. That being the case, the question of whether two individuals are living separate and apart for the purposes of the Income Tax Act is a question of fact that can only be resolved after a full review of all the facts, actions, circumstances and documentation relevant to the particular situation.
In the situation described, if at the relevant time, on the facts, Mr. X and Ms. Y had been living separate and apart because of a breakdown of their conjugal relationship for at least 90 days, they would no longer be common-law partners for the purposes of the Income Tax Act from the date they began living separate and apart. If, therefore, at the time of the withdrawal of an amount from her RRSP on September 15, 2021, Ms. Y did not have a spouse or common-law partner, the condition in paragraph (f) of the definition of "regular eligible amount" in subsection 146.01(1) would not apply. In addition, since she would not have been an owner-occupant of a home during the period beginning January 1, 2017 and ending 31 days before the date of the withdrawal on September 15, 2021, the condition set out in paragraph (e) of the definition "regular eligible amount" in subsection 146.01(1) would be satisfied. Consequently, if the other conditions set out in that definition were satisfied, Ms. Y would be able to participate in the HBP, without regard to the rules in subsection 146.01(2.1).
CRA response to question 5(b)
The Income Tax Act does not define the term spouse. In Quebec, it is therefore necessary to rely on the civil law. Under civil law, spouses are persons who are united by marriage. Consequently, it is our view that for the purposes of the Income Tax Act, persons connected by marriage remain spouses until the marriage ties are legally dissolved. According to Article 516 of the Civil Code of Québec (footnote 4), marriage is dissolved by the death of one of the spouses or by divorce. In the situation described, assuming that Mr. X and Ms. Y were married but separated, but not divorced, Ms. Y would have a spouse when she made a withdrawal from her RRSP on September 15, 2021. In the absence of subsection 146.01(2.1), paragraph (f) of the definition of "regular eligible amount" in subsection 146.01(1) would normally prevent Ms. Y from participating in the HBP.
Paragraph 146.01(2.1)(a), however, provides a deeming rule that deems an individual and the individual's spouse or common-law partner not to own a home as owner-occupants during a period that ends before a particular time for the purposes of the definition "regular eligible amount" in subsection 146.01(1) if certain conditions are satisfied.
Among those conditions, under subparagraph 146.01(2.1)(a)(i), an individual, and a spouse or common-law partner of the individual, must, at the particular time, be as follows:
(A) is living separate and apart … because of a breakdown of their marriage or common-law partnership,
(B) has been living separate and apart … for a period of at least 90 days, and
(C) began living separate and apart … in the calendar year that includes the particular time or any time in the four preceding calendar years.
In addition, subparagraph 146.01(2.1)(a)(ii) requires that the individual not have a spouse or common-law partner, other than a spouse or common-law partner referred to in subparagraph 146.01(2.1)(a)(i), who would otherwise be precluded from having a "regular eligible amount" because of the application of paragraph (f) of the definition of "regular eligible amount" in subsection 146.01(1).
Subparagraph 146.01(2.1)(a)(iii) provides an additional condition where the individual who wishes to participate in the HBP has an owner-occupied home at the particular time. That subparagraph does not apply where the individual does not have an owner-occupied home at the particular time.
The CRA's long-standing position that it is possible for two individuals to live separate and apart while residing in the same residence is also applicable for the purposes of subparagraph 146.01(2.1)(a)(i). That determination remains a question of fact.
In the situation described, if, according to the facts, Mr. X and Ms. Y had been living separate and apart due to a breakdown in their relationship since June 1, 2021, the conditions set out in subparagraphs 146.01(2.1)(a)(i) and 146.01(2.1)(a)(ii) could be satisfied at the time of the withdrawal on September 15, 2021, and the condition in subparagraph 146.01(2.1)(a)(iii) would not be applicable. Consequently, Mr. X and Ms. Y would be deemed not to have an owner-occupied home during the relevant period for the purposes of the definition of "regular eligible amount" in subsection 146.01(1) under the deeming rule in paragraph 146.01(2.1)(a). That would allow Ms. Y to satisfy the condition set out in paragraph (f) of the definition of "regular eligible amount" in subsection 146.01(1). Consequently, if the other conditions set out in that definition were satisfied, Ms. Y would be able to participate in the HBP by virtue of the rules set out in subsection 146.01(2.1).
CRA Response to questions 5(c) and (d)
On the assumption that Mr. X and Mrs. Y were co-owners of the family home, paragraph (e) of the definition of "regular eligible amount" in subsection 146.01(1) would usually prevent Mrs. Y from participating in the HBP, subject to the provisions of subsection 146.01(2.1), regardless of whether Mr. X and Mrs. Y were common-law spouses or married during their life together.
Where the individual who wishes to participate in the HBP is an owner-occupant at the particular time, the condition in subparagraph 146.01(2.1)(a)(iii) must be satisfied, in addition to the conditions in subparagraphs 146.01(2.1)(a)(i) and (ii), as described above, in order for the deeming rule in paragraph 146.01(2.1)(a) to apply. That condition may be satisfied in either of the following cases:
(A) the home owned by the individual as an owner-occupant at the particular time is not the qualifying home in respect of which the individual wishes to participate in the HBP and the taxpayer will dispose of the home no later than the end of the second calendar year after the calendar year that includes the particular time; or
(B) the home owned by the individual as an owner-occupant is the qualifying home in respect of which the individual wishes to participate in the HBP and the individual acquires the spouse's or common-law partner's right in the home.
In the situation described, if Mr. X and Ms. Y were co-owners of the family residence, Ms. Y wished to participate in the HBP to acquire a new residence and, according to the facts, Mr. X and Ms. Y had been living separate and apart due to a breakdown in their relationship since June 1, 2021, the conditions set out in clauses 146.01(2.1)(a)(i), (ii) and (iii) could be satisfied, provided that Ms. Y disposed of her rights in the family home within the time limit set out in clause 146.01(2.1)(a)(iii)(A). This would allow Ms. Y to satisfy the condition set out in paragraph (e) of the definition of "regular eligible amount" in subsection 146.01(1).
Similarly, if Mr. X and Ms. Y were co-owners of the family home, and Ms. Y wished to participate in the HBP in acquiring Mr. X's rights as co-owner of the family home so as to become the sole owner, and Mr. X and Ms. Y had been living separate and apart due to a breakdown in their relationship since June 1, 2021, the conditions set out in subparagraphs 146.01(2.1)(a)(i), (ii), and (iii) could be satisfied, allowing Ms. Y to satisfy the condition set out in paragraph (e) of the definition "regular eligible amount" in subsection 146.01(1). In such a situation, paragraph 146.01(2.1)(b) would apply so that Ms. Y would be deemed, for the purposes of paragraphs (c) and (d) of the definition of "regular eligible amount", to have acquired a qualifying home on the day on which she acquired Mr. X's interest in the family home.
As for the condition set out in paragraph (f) of the same definition, the comments set out in response to questions 5(a) or 5(b) would apply, depending on whether Mr. X and Ms. Y were common-law partners or married during their life together.
Consequently, in either of the situations described in questions 5(c) and 5(d), if Mr. X and Ms. Y were, as a factual matter, separated due to a breakdown in their relationship from June 1, 2021, Ms. X would be eligible to participate in the HBP if the other conditions set out in the definition of "regular eligible amount" in subsection 146.01(1) were satisfied.
Mélanie Beaulieu
(343) 543-2154
October 7, 2021
2021-090387
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 R.S.C. (1985), c. 1 (5th supp.) (« I.T.A.»).
2 CANADA REVENUE AGENCY, Technical Interpretation 2012-0453201C6, October 5, 2012 and CANADA REVENUE AGENCY, Technical Interpretation 2012-0438021E5, April 25, 2012.
3 See also CANADA REVENUE AGENCY, Technical Interpretation 2016-0674821C6, February 2, 2017.
4 CQLR (« C.C.Q. »).